Sterling slips on Barnier's talk of "impasse" in Brexit discussions

LONDON (Reuters) - Sterling fell against the dollar on Thursday after the European Union’s chief negotiator said Brexit talks on money were at an “impasse”, adding to political uncertainty for a currency that has fallen over 12 percent since last year’s EU vote.

The European Union and Britain have not made major progress this week in talks about the country’s exit from the bloc and are stuck over how much Britain should pay when it leaves, the EU’s Michel Barnier said on Thursday.

Barnier said the discussions were deadlocked on the issue of how much money Britain should pay the bloc in its deal to exit it. London’s refusal to spell out a detailed cash offer was “very worrying” for business, he said.

The pound tumbled almost a full cent against the dollar after the comments, hitting the day’s lows of $1.3122, down from $1.3212 beforehand.

But by 1520 GMT it had recovered to $1.3162, down around half a percent on the day.

“It’s an easy reaction to have: sell sterling on the deadlock. But ultimately, these comments came as no surprise,” said CMC Markets strategist Michael Hewson.

“This is nothing we didn’t know two or three days ago - all that happens is the can gets kicked further down the road.”

The pound also weakened against the euro to hit a four-week low of 90.33 pence, before recovering to 89.89 pence per euro, down just 0.2 percent on the day.

Neil Jones, Mizuho’s head of hedge fund currency sales in London, said the impact of Barnier’s comments on the pound had initially been tempered by Britain’s lead negotiator David Davis’s more optimistic take. Davis said there had been progress on the area of citizens’ rights, which had moved the two sides “even closer to a deal”.

British finance minister Philip Hammond said on Wednesday the value of a transitional Brexit deal would decline rapidly if were to drag into next year, but said it was too soon to spend money on contingency plans.

The speech had only minimal impact, with markets until Thursday more focused on strong British data releases this week and broad expectations of interest rate hikes from the Bank of England.

Before Barnier’s comments, a weakened dollar had helped bump the pound as high as $1.3244, its strongest since Oct. 4.

Data from the Royal Institution of Chartered Surveyors showed on Thursday that British house prices faced the weakest outlook since the Brexit vote, which could be interpreted as another sign of a slowing domestic economy.

Reporting by Fanny Potkin; Editing by Gareth Jones and John Stonestreet